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March 29, 2012

9 Year Mortgage Budgets on Any Income: The 50-30-20 Method

9 Year Mortgage Budgets on Any Income: The 50-30-20 Method

While there is no one-size-fits-all approach to budgeting, this method can work for any income level. You may think your income is the problem; however 9 Year Mortgage suggests it is possible to budget no matter how small you think your income may be. First, start with your after-tax income.

50% of your after-tax income should be spent on the “must haves”.

These include housing, transportation, food, and insurance. This area does not include things that can be put off for a later date. For example: eating out, shopping, etc.

30% can be devoted to “wants”.

This includes things like vacations, entertainment, clothes and gifts.

20% is spent on savings and debt repayment.

In order to become financially independent it is important to get rid of debt, save for retirement, and have a savings account for emergencies. Any loan payments above the minimum payment can go in this category. When you first look at your income and your current expenses, you may be spending more than 50% of your income on “must-haves”. However, 9 Year Mortgage suggests there are areas that you can easily trim down in order to get closer to the 50% mark. Some of these include food, utilities, and getting rid of long-term contracts.

Food: You can easily trim down your food expenses by planning meals and cooking at home. Try to limit your take-out and dining out habits, and you will be shocked at what you can save.

Utilities: Be mindful of turning the lights off when not in use. In addition, the AC does not need to be on full blast all day.

Long term contracts: It might not be cost-effective to pay the cancellation fees at the moment, but when those contracts are up for renewal it is time to shop around. You might be able to switch cellular providers, go to the YMCA rather than the gym, or find a cheaper cable company. While each of these changes might not sound like much on their own, when added up you will be surprised at what you can save! Why limit your “must-haves” to 50%?

You have some flexibility should your financial situation change. For instance, your income could drop by half and you would still be able to pay all of your important bills

You can figure out what you can or cannot afford. For instance if you are considering taking out an additional loan, you can look at your budget and quickly see if that additional payment will keep you within your 50%

You will have money to do things you enjoy without having to worry about if you can afford it

The 50-30-20 Plan allows you to save for your future

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